Alsea Tumbles as UBS Says Sell After Earnings: Mexico City Mover

Alsea SAB fell the most in a week after third-quarter profit missed some analysts’ estimates and UBS AG cut the shares to the equivalent of sell, saying near record levels would be hard to sustain.

The shares of Mexico’s largest fast-food chain operator dropped 2.1 percent to 21.92 pesos today in Mexico City, the biggest drop since Oct. 10. The company rallied to a record closing high of 22.74 pesos on Oct. 15. The benchmark IPC (MEXBOL) index of 35 Mexican stocks fell 0.5 percent today.

“Valuation is pricey, and with the stock trading at historic highs there is little room for error,” UBS analysts led by Marimar Torreblanca wrote in a research report published today as they lowered the shares from the equivalent of hold. “As spaces get more crowded, opening stores in big cities becomes more challenging, and we think this eventually could start showing in store profitability.”

Operating income, omitting depreciation and amortization, rose 44 percent to 412.5 million pesos ($32 million), missing UBS’s projection by 3 percent, while net income advanced 2.5 percent to 84.3 million pesos, 2 percent below UBS’s estimate. Revenue increased 26 percent to 3.5 billion pesos.

Alsea shares soared 63 percent this year through yesterday, making it the seventh-best performer on Mexico’s benchmark gauge. The stock’s price touched a five-year high 4.38 times book value on Oct. 15.

To contact the reporter on this story: Jonathan J. Levin in Mexico City at jlevin20@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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